you look at the attack on north korea, probably, as an example of that. after the sony break-in. but it is difficult to define what cyber offense is. >> and under what scenario would the u.s. engage in this? >> so you know, the defense department has asserted its right to basically go on cyber offense when trying to defend the nation, our allies and interests. that's, you know, an official defense department report from late 2011, for instance. that would be one area where they would go on offense in the name of defense. >> and what countries have demonstrated that they're a threat in this arena? >> so you know you have to start with the united states. but as far as the threat to us

you know, china has demonstrated some advanced capabilities on cyber. they haven't conducted anything that might resemble warfare, per se, but they have stolen military secrets from the united states. that starts to see an area that's moving closer to offense than mere security and espionage. russia has devil straighted a real cyber offense capability if you look at the war in georgia. there was a demonstrated capability to go on that kind of offense. and another looking to do a good job of that, if they want to is israel. if you look at the joint effort of the united states and israel to create the stuxnet worm that went after the iranian nuclear capabilities that's another major area. there might be some terrorist organizations interested in developing that. but those are the big players on the international scenes, the

nation states to have any kind of real severe ability to conduct attacks. the nsa with north korea a lot of countries would probably have that capability. it's easier to attack the private sector than it is to attack the u.s. government. >> what are the current rules of engagement? and are there any? and does the united states follow them and do other countries have rules of engagement? >> so, if there are any rules the united states adheres to it is hard to discern them. you know, some of the -- delving into the class society sector so it can be difficult for anyone to us is out what they might be. but when i talk to people what they tell me is that there aren't any obvious rules. it is a very, very turkey area. it is something that the defense department has been working toward developing for a long time. and there's a cyber command that, you know is under the

defense department and you know, joint effort with the national security and there were recent calls in congress after the attack on sony to develop a formal policy on cyber offense. to develop more formal capabilities. but it is a very murky area. >> where does all that stand? what does congress want to do, and what is the administration doing? is the united states prepared for cyber attacks? >> so you know the -- even though there is this newer home for something to happen on normal cyber offense rules it's really still even in the developmental stage. i started writing about cybersecurity back in '09-ish, and a couple years later, you know i started asking about the offense side and people were saying gork we're still trying

to figure it out. that's still where we are is trying to figure it out. and you know there was a limited bit of language in a fiscal 2012 defense operation, though basically saying we give your blessings to conduct cyber offense but in a very kind of vague way not in a specific way. as far as the united states overall ability to defend itself. it's, you know, it's more advanced than most nations. it's nor advanced than probably any nation we're talking about the government. it's still relatively easy by the nature of cyber attack to conduct an attack. even on the u.s. government. we were leaking secrets to china on accident for a very long time because because our defenses were not very good. we're probably still leaking some of those secrets and certainly the private sector is very vulnerable, as well. >> if the u.s. were to, or have engaged in offense when it comes

to cyber attacks, what agency would be doing that? >> so it would almost certainly be the defense department. some combination of the u.s. cyber command, and national security agency would be leading that kind of effort. it's possible that there might be other agencies involved. but those would be the main ones to look at. >> the washington is reporting this morning, still starks, that there's going to be a new agency to sniff out threats in cyberspace. sony picture hacks spurs the u.s. to set up rapid source on intelligence -- of intelligence on these attacks. this is going to be -- this is going to be made -- this announcement is going to be made later today by the administration and this will be an executive order put out by the president. what do you know about this new

agency. what sort of role would it play? >> it looks as though it will be something like a national counterterrorism center. that is a separate agency within the intelligence community that collects all the threat data and puts it in one place. sounds like a very similar idea to that. it is the kind of thing that you know back when the nctc was starting to be formed, people ask why can't another agency do this, why can't the cia do this, why can't any other -- why can't the office of director of national intelligence do this before the actual formalization of that office be informed? i think you'll probably hear some similar questions. why do we need a separate agency to do this when we have the department of homeland security which is supposedly the civilian. we have the national security agency. why can't one of those agencies just handle it? it sounds as though the obama administration thinks that a separate effort is needed

similar to the nctc. >> and so back to this topic of going on the offense and asking our viewers whether or not they think we should be engaging in offense when it comes to cyber attacks, going to turn to our viewers here in just a minute and have them respond to this and get their take on it. what is -- what is happening next on this front? i mean is congress -- is there legislation percolating, is the administration planning something? who's going to make the next move? so that will be an interesting question. there has been at times a little bit of tension between the administration wanting to do this on its own without any kind of congressional interference. and the congress wanting to get involved and writing the rules but also not wanting to get overly prescriptive. i think with the north korea,

sony attack, there was -- there's increasing interest in actually congress doing something. you know, you saw the chairman of the house homeland security committee, michael mccaul last month say we need to develop rules on this. we need to strengthen our capabilities to do this. 44 i have not seen any formal written legislation yet. that doesn't mean that we won't see it especially from someone like chairman mccall, perhaps, or perhaps in the defense authorization bill this year or perhaps in intelligence authorization bill depending on who works to get involved from what end of things. i wouldn't be surprised to see something like that this year. at the same time i also wouldn't be surprised to see some pushback from the administration saying, let us figure this out. we've been working on this for awhile. we're still trying to develop the rules on our end, give us a little space. >> okay. all right. tim starks, thank you for your time. >> no, thank you.

>> a reminder we'll hear more about cybersecurity at 12:45 this afternoon live on c-span2 at the wilson center with lisa monaco, the white house homeland security, and counterterrorism adviser. we're here with the senate finance committee hearing this morning on the u.s. tax code. members will hear from former senators bob packwood, the oregon republic, and the democrat from new jersey bill bradley. both former members of the committee and both were part of the 1986 tax bill under president reagan. our live coverage under way here. we're waiting for senator hatch, who is the chairman. he opened the senate this morning. the senate started its session today, no firm legislative schedule has been announced yet but senators have been giving speeches about the homeland security bill and those provisions in it that would block the president's immigration action. live coverage of the senate over on c-span2. the house begins its legislative day today at noon. they'll take up several bills. includes one that provides $18 billion for nasa programs to replace the space shuttles with

new launch systems to reach the international space station by 2017. and also mars, for human exploration. another bill calls for airports to have response plans for security threats. tomorrow the house expected to take up the keystone xl pipeline and live house coverage always over on c-span. we see a couple of senators. a couple of them there in the room. this should be getting under way shortly.

and here we're here with the senate finance kitty. you can see the chairman, senator orrin hatch of utah. he's the gentleman in the gray suit walking back to the center of the dais there. we're waiting yet it looks like for former senator bill bradley, the new jersey democrat. you did see a moment ago senator hatch talking with former senator bob packwood. both senator -- former senator bradley and senator packwood will be witnesses today. they'll be talking about some of that 1986 tax deal under president reagan. they were both members of the committee and they were part of that tax package. we do have live coverage and we're under way as soon as this hearing gets gaveled in.

hearing will come to order. today's hearing is about the need for tax reform and what lessons we can learn from the tax reform act of 1986. the last successful overhaul of the united states tax code. we have before us today two former senators who were key to that effort. i don't know why they call you former senators. i think you're always going to be senators to me. i look forward to hearing their thoughts and advice, and i think we all do, during today's hearing. before we engage meaningfully in tax reform we need a clear vision of what we want success to look like. a vision is not a specific system of rates, of deductions or credits. instead a vision is how we want to change the opportunities for american families and the rewards that americans receive from their labor. entrepreneurship, and

investment. a successfully reformed tax system will help make america the best place in the world to work, conduct business, invest, and prosper. a successfully reformed tax system will be one that provides economic growth, and is simple and fair. this, more than anything else, should be our vision for tax reform. the landmark tax reform act of 1986 was developed by then-chairman bob packwood through a careful and methodical partisan -- bipartisan process that relied heavily on member input. senator bradley was a key part of that process. i don't want to leave out congressman rostenkowski and a whole rash of others in the white house at that time. but these two are the two great leaders in the senate at that time. over the last few weeks we've begun a similar process that we hope will yield a similar result. tax reform legislation that both parties can support.

the 1986 act signed in law by president reagan reformed a costly and complicated tax system into a simpler one, with lower tax rates for american households and businesses, affording them greater personal prosperity. over time our tax system has once again become costly, complex, it's impeding growth standing in the way of shared prosperity and placing american workers and businesses at a distinct disadvantage. put simply, it is past time for congress to stand up once again to fix our broken tax system. if you've been around washington over the last few years, chances are you've already heard me talk about tax reform. i've been making the case for tax reform on the senate floor, here in the finance committee and public appearances and written materials and in private conversations. in december the republican staff of this committee produced a comprehensive report outlining the need for tax reform and providing some direction to our overall efforts. i'm sure everyone here has read that report cover to cover. i've already publicly laid out seven principles that i believe

should guide our tax reform efforts. i will not go in to much detail on each principle today, instead i'll just talk about them briefly. first principle is economic growth. tax reform if it's done correctly should promote growth and significantly reduce economic distortions that are present under the current income tax system. the second principle is fairness. the income tax base which has become riddled with exclusions, exemptions deductions, and credits, should be as broad as possible. tax reform should broaden the tax base by eliminating or reducing a number of tax expenditures along with lowering tax rates and removing distortion. the third principle is simplicity. the taxpayers and businesses spend over 6 billion hours a year complying with tax filing requirements, with annual compliance costs in excess of $171 billion. which is more than the gross domestic product of new zealand, for instance. simplifying the tax code will result in greater clarity and

compliance, and will free up resources for families job creation, and other productive uses. the fourth principle is revenue neutrality. tax reform should be revenue neutral and not an occasion to raise taxes on american households or businesses. general revenues already exceed their historic average as a share of our economy and greater revenue should not be an objective of reform. the fifth principle is performance. the joint committee on taxation lists almost 100 provisions of the tax code that will expire over the next decade. this is unacceptable. families and businesses should be able to plan for the future without wondering if the tax code is going to change from year to year. the sixth principal is competitiveness. the combination of a high corporate tax rate worldwide taxation and the temporary nature of some tax incentives makes american companies less competitive when compared to their foreign counterparts. tax reform should reduce burdens on businesses, large and small

to allow them to more effective compete on the world stage. the seventh principle is the promotion of savings and investment. many aspects of our current tax system discourage savings and investment, thereby hindering long-term growth. savings and investment help build the capital stock providing fuel for economic growth, and it generates prosperity for american workers and businesses. these seven principles are the guideposts that we use when looking at tax reform proposals. i think we're going to have an interesting hearing today. we have two really great former leaders, chairman packwood and senator bradley, to see what advice they can give us if we undertake our tax reform efforts in this congress. i did read showdown in guchi gulf and some indication of how difficult this was. if anything it may be even more difficult today, because of the mess that has occurred since

none of which you deserve to be blamed for. senator widen? >> thank you very much chairman hatch. as chairman hatch noted, the finance committee is joined this morning by two legislators who are at the heart of the last major overhaul of the u.s. tax code in 1986. chairman packwood spent more time than anyone figuring out how to make the numbers in tax reform work. that is the tough work of legislating. senator bill bradley was the intellectual godfather of the reform plan that broadened the base closed loopholes and kept progressivity in the code. senator bradley lit the fire that got the reagan administration invested in reform. and i don't think anyone would question my judgment that senator bradley had by a wide margin the best jump shot in the senate tall guy caucus. now if there's one obvious similarity between 1986 and

today it's that people are quick to say that tax reform is absolutely impossible. americans say congress can't organize a two-car parade. there's no way they could come to the on major economic legislation. so what happened three decades ago needs to happen again. turning the impossible into the possible. the congress and president reagan came to the to pass the 1986 tax reform act based on what i call principled bipartisanship. one side wanted to flatten the tax code. the other side wanted to close loopholes and guarantee that the tax code treated everyone fairly. both sides said we're going to set aside the partisan attack. look for common ground, and each side came away with the feeling that it had upheld its principles. when president reagan signed the bill into law, he called it an

historic overhaul of our tax code, and a sweeping victory for fairness. he continued, and i quote here, it's also the best anti-poverty program, the best pro-family measure, and the best job creation program ever to come out of the congress of the united states. those same objectives guide the finance committee in the congress that works again to modernize our tax system. reforming the tax code is always a herculean task. but the same strategy of principled bipartisan can work once again. the congress can turn the impossible into the possible. however, policymakers need to recognize that the process is going to look different. not every part of a 30-year-old game plan for tax reform can work today. china and india are now superpowers in the global economy. which is a much bigger factor in

the tax reform debate. the gulf between wage earners in the top of the income ladder has widened. and america is at its best when a rising tide lifts all the boats, and it should be obvious that making that reality -- that a reality once again is going to take some hard work. the status of the middle class across america is at the top of the list of compelling issues for tax reform to address. it's fundamentally unfair that a middle class wage earner could pay a higher tax rate than an affluent person whose earnings come entirely from investments. the tax code should not be used to punish the wage earner in america. many tax incentives for college education and retirement savings are simply out of whack. the support those incentives provide don't always get -- get to those who need them the most. and that ought to change. another challenge is making america more competitive in the global economy.

today, look and come away saying our country is trying to win a road race in a 30-year-old car. our competition, meanwhile trades up to more efficient models. america hasn't done enough to drive innovation at home, and worse, the tax provisions for research and development expire year after year. in 1986 there wasn't a lot of talk about the tax code. for example, and a clean energy future for our country. that's something else that has to change this time. and finally, modernizing our tax code has to be done in a fiscally responsible fashion. tax reform cannot become an exercise in slashing rates at any cost. the biggest lesson from 1986 is that tax reform is possible, when democrats and republicans set partisanship aside, come together, and focus on shared principles. over the years, i've talked frequently to senator bradley about how tax reform is always

totally completely and thoroughly impossible until that moment when it happens. the finance committee today has two experienced, knowledgeable witnesses who are going to help us get closer to that point today. chairman hatch, thank you. and i look forward to our witnesses. >> mr. chairman mr. chairman if i may have a point of privilege just for a moment? and i thank the chair very much. i am in a intelligence briefing on iran. but i wanted to come to join the committee and its leadership in welcoming the most outstanding united states senator new jersey has ever had to represent it. not only is he had a great ability to shoot a three-point shot effortlessly, but the intellect that bill bradley possesses, and his willingness to pass the ball to fellow teammates, made him a consummate successful united states senator here in new jersey. so, i've read his testimony. i look forward to the q&a so we

can engage in some of it and i appreciate him and senator packwood joining us. >> thank you, mr. chairman. >> thank you senator. i think that was pretty -- of our senator. our first witness is bob packwood. senator packwood was first elected to the u.s. senate in 1968, and served the people of oregon and this body for 26 years. he was chairman of the finance committee from 1985 to 1987 and presided over this committee's efforts to draft and pass the tax reform act of 1986. he made a typical difference in this, as did our other witness. he also served as chairman of the commerce committee for four years. and prior to his time in the senate, senator packwood practiced law in portland oregon, for ten years. was elected to serve for three terms in the oregon state legislature. he received a bachelor's degree in political science from william f. university --

willamette. i got to pronounce that better don't i? and a law degree from university of new york law school. we feel honored to have you here today. we know you can help us in many ways to understand some of the difficulties we're going to have to get through. and hopefully give us some advice on how to get through it. our second witness is another great human being who i greatly admire and admired before he came to the senate, and that's senator bill bradley. senator bradley represented the people of new jersey here in the senate for three terms. beginning of 1979, and as a member of the senate finance committee he played a pivotal role in the drafting and passage of the tax reform act of 1986. of course prior to his time in the senate senator bradley was a great professional basketball player. he's a two-time nba champion and a member of the basketball hall of fame. senator bradley holds a bachelor's degree in american history from princeton, university and a master's degree from oxford university where he was a rhodes scholar. he is the author of seven books

on american politics, culture, and economy. and currently hosts an american voices a radio show highlighting the remarkable accomplishments, both famous -- of both famous and unknown americans. we welcome you, senator bradley, as well. we thank both of you for being here today, and we look forward to your testimony. senator packwood you go first. >> and senator bradley also holds a record for the most points ever scored in the play of basketball playoff in portland oregon, when he scored what, 64 points? 58. mr. chairman when i was contacted everyone asks how do you do it in '86, and are there any other parallels till today? there are some but the circumstances were different. in our era fairness was the issue, not income and equality.

and the next to the last page of my statement, you will see a list of newspaper stories about people that paid no taxes at all. industries, defense industries at the time of the reagan buildup that not only paid no taxes, they got money back. and the public, and the members of congress, could not understand how wealthy corporations, and wealthy individuals could pay nothing. it wasn't fair. so that was the premise we were operating under at the time. you will find -- you will find in my statement on occasion the word diary. that means it was taken specifically from my diary at the time. now, what happened. first tax reform is not a new idea. stanley surrey who was president kennedy's assistant treasury secretary for tax came up with the idea of tax expenditures. you can lower taxes and get rid of them. bill bradley and dick gephardt in their fair tax said the same thing. studies treasury one and

treasury two, we all knew how it worked. we all knew that you could lower the rates if you could get rid of deductions. it's pure mathematics. the house had public hearings for a year in 1985, and they had a lot of individual votes on things as they went along. and they picked up enemies. they picked up barnacles because some of those interests lost their votes and there's lots of single issue groups. and i don't mean the nra or right to life but you touch mortgage interest and you've got -- you touch charitable contributions and you've got every organization in the country opposed. and the problem with the -- the house bill is that they had enough of these barnacles attached to the bill when they finally came out of committee, that there were votes on the

floor to pass it. it would have failed but for the fact that ronald reagan literally came up on the hill. met with the republicans and said, please vote for this bill i will veto it if it passes in this form, but send it to the senate and see what they can do. with that enough republicans changed their vote and the bill passed. although you'd never know if they changed their vote because it passed on a voice vote in the house. comes to the senate. and in those days the senate didn't get going as quickly as you've gotten going now, and going till mid-february or march. i finally started having some hearings on this bill but we didn't need many hearings because in the summer of 1985 we had about 30 hearings on the subject of tax reform. just in case the house would pass something. because if they passed it, i mean we have to act relatively quickly and i didn't want to have a lot of hearings at the same time. so we pretty much cleared the

deck of hearings. but there's one thing that caught my mind at the time of the hearings. and i would ask witnesses how low would the tax rate have to be before you didn't care whether there was any deductions? how low? 30%? 20%? 25%? it's always in that range. i didn't think much about at the time but i was intrigued that almost every witness i would ask, that's what i would get. well, all right. we come to the spring of 1966. because i'm frankly making no progress in committee. we're not making the bill any better. we're not making it any worse. we just aren't getting any place. so on friday april 18th, i simply adjourned the committee, said we're done with the bill. somebody said you mean we're done for the day? i said no we're done with the bill. this is the end of this bill. and at that stage i called them and this is where things moved so rapidly. i called david brockway, who was then the chief of the joint tax

committee said give me three bills, 25 26, 27 percent. he says 25% you'll have to get rid of mortgage interest. and bill i remember you saying how much trouble mortgage interest on your bill. so i asked him what about 26%? that's friday. the following tuesday he comes and he gives me three, not bills. they weren't bill form but three plans as to how you could get 25%, 26%, 27%. and i looked at them and then i was delayed for 2 1/2 days, because at this stage up came fast track for the canadian free trade agreement. it's one of those things where the president can't move unless you give him fast track authority, and there was a deadline. if congress had not acted by, this is tuesday, the next wednesday at midnight, he got it. the house had not acted. fell on our side to take care of it. i thought it was a slam dunk. i was sure we were there. turns out i didn't have the

votes. i was missing one. and it was sparky who was mad from hawaii that the president had not answered his letter on macadamia nuts. and i had to get over that hurdle, and bring him around. we finally succeeded in doing it but it was thursday before i was done. then on thursday i presented to the committees at the same time our committee just the outlines. we have no bill. just the outlines of what might be possible, and they seemed to like that. so i thought to myself meeting's over, and getting toward the weekend and i'm thinking at this stage how are we going to do this? and i thought the only way it can be done is bipartisan, quickly, and behind closed doors. the bipartisan because i could see any bill that was utterly partisan on the republican side would have no success with the house conference.

any bill that was not done quickly, but hung out like the house bill did would pick up enemies all along the way. and it would have to be done behind closed doors. it was helpful to have the president on board. it wasn't critical but it was helpful to have him basically going the same way we were going to go in the senate. on that weekend on saturday and sunday i called six senators. bill bradley george mitchell pat moynihan jack danforth john chafee malcolm wallace and i said would you be willing to meet in my office starting next tuesday at 8:30 to see if we can work out a bill that would be satisfactory to us, and the president? every one of them said yes. and now passed starting that tuesday the most extraordinary

experience in my life in politics. we met from tuesday to tuesday the bill was at -- every morning at 8:30 i'd meet with staff at 7:30, this core group a cabal as i called it at 8:30 we'd work out what we thought should be in the bill. we had one or two open committee meetings but basically the committee was just marking time waiting for us to finish. and you could tell although the meetings were behind closed doors there's no secrets in this town. and the board was getting out. we were having the meetings but no one exactly knew what it is we were doing. but on the thursday between these two tuesdays came a phone call that became very important in this whole process, and i will read it to you, because it's from the diary. back again to tax reform in closed session was interrupted by a phone call from daniel

rostenkowski. bless his soul he said pal, i've been thinking of coming over there and without fanfare, without press just to say i've been through it. i know every day you go through troughs and on hills and i've been bleeding for you. but i think what you've got in terms of tax reform is the best thing congress has seen in ten years. you get this through the senate. and between the two of us we're going to put out a bill that for a generation of americans will look like a pinnacle. god i appreciated it. what he was saying, with the ways and means committee chairman is saying write this bill in the senate, ways and means doesn't say very often. we continued our meetings through friday, and then we had a public meeting friday afternoon and i said to everybody, we're done. and we're not going to meet this weekend. by this time, the hallway is packed with lobbyists we have speakers out there. committee we're done. we're not meeting at all this weekend. cheers in his office.

and then i said to the core group, but we will meet tomorrow. bill had already planned, went to kentucky that night for a speech cansinged the kentucky derby and came back to be with us the next day. on that saturday the seven of us met all day, from about 8:30 to around 4:30 or 5:00 in the afternoon, and that tied up all the last of the things we needed. joint tax needed a couple days to get it together. but they would have it for us monday or tuesday. and we were ready to gone tuesday night until i finally had to make an odious deal with the oilies to get their support not the committee, we could have beaten them in committee, but to get their support for something we needed desperately on the floor and if we lost this particular issue on the floor the bill was dead. and that was it. we vote that night and most of the committee had not ever seen the whole outline of the bill or

the whole bill until that night. so from tuesday to tuesday the seven of us worked that night the bill is adopted 20-0. now, can you do the same thing now in this committee? here are the things that would be critical. it's helpful to have the president on board to have him with you from the start. but at a minimum, you've got to make sure that he's not against you, or gives the impression that he's not sure if he's going to vote for it, or he has some questions, because you're not going to get your members to take tough votes on things that the president might veto if you put them in a bill. so at a minimum he must say i'm open to sending you a good bill. two, i think you're going to have to do it in much the same way we did, which is behind closed doors. but that's not uncommon in the house and the senate, even today. behind closed doors and try to do it quickly and present it in

one grand bill. we did it combining both corporate and individual into one bill, and then used the money we raised from them to lower tax bills for everybody else. if you look on the last page of your statement you'll see who the major groups were we hit. it was almost all corporations and rich individuals. and do it in one bill so that people don't have to pick out a particular thing that they don't like and are forced to go on it. give them this. you give them the whole bill and i think they'll go for it. and so that's what we succeeded in doing and believe it or not hitting business as hard as we did, raising their taxes, about $140 billion, we managed to lower the corporate rates from 48% to 34%. lower the individual rates from 50% to 27%. and keep the bill revenue neutral. you can do it.

but orrin and ron the two of you are going to have to make an agreement as to what we're trying to get and the thing i like about the fact that the two of you doing it ron, you may recall about ten years ago we ran into each other in the dry cleaners. and you were working on tax reform then. and i know, orrin, you crossed party lines many times i remember you working with ted kennedy on things. we both showed a willingness to work across party lines and on some occasions when it didn't please your parties too much. so it can be done but it can only be done if the majority and the minority at the start are on the same page. thank you, mr. chairman. >> well, thank you. that was fascinating. we're very appreciative to have that overview. senator bradley, we'd love to hear from you. >> thank you very much, mr. chairman. it's always a pleasure to be on a panel with senator packwood.

he's an extraordinary leader, and he ran the committee with great effectiveness, not only on tax reform but on a whole series of other issues. this is also a first for me. the first time i've been in this room since december 1996. i notice it hasn't changed. but what i'd like to do is i'd like to keep a few thoughts about structure, and make amplification on two things that senator packwood said. first, what is the ideal income tax system? i believe the ideal income tax system is a system that provides the greatest number of people the lowest rate. in terms of principles, and these were the principles that i think we used in 1986 to determine what it was in what was out one was efficiency. the basic threshold question for

members of the finance committee, and the efficiency point is i believe, the mark of a more efficient allocator of resources than is a member of the ways and means committee or the finance committee. so that was one principle. the second principle is an equity question. horizontal equity. equal incomes should pay equal taxes. not somebody has the same income and next door somebody is using loopholes to reduce their tax rate. third is fairness. which is essentially vertical equity. and that is those who have more should pay more. in other words the progressive nature of the system. and fourth, do whatever you can to make the system less complex. we live in a time where few

people fill out their returns, and where tax fraud is estimated to be nearly $80 billion to $100 billion. so those are the principles. efficiency, equity, fairness, simplicity. and you measure everything against those principles. now what do you need to pass tax reform? drawing on our experience i think you need at least six things. the first thing you need is the exact thing president packwood said. you need a president who is going to put this prestige and clout on the line to drive things through when the inevitable obstacles appear. second, you need a treasury secretary who is the president's

designee to deal with it every day, and you need a treasury secretary who has an incredible person who constantly monitors that. of course, in 1986 the president was ronald reagan. and his secretary of treasury was jim baker. and his assistant was dick dar darmin. all of whom played critical roles in this. i can't tell you how important it is to have a treasury secretary who can speak for the president, who doesn't have to run back to the white house all the time to check this or check that. and, in fact as bob remembers, we got down to the critical strokes at the end of this process. there were some difference of opinion, and jim baker was in the room doing the negotiating. because he knew enough of the substance and had paid attention to it. i remember him convening a meeting during the period when there was treasury one and

treasury two, which were things that ronald reagan tasked as the treasury department to do. and he convened a meeting with jack kemp at his house, and me and i think bob or a few other people, i think it's important to know the long ter-term journey of tax reform. when i came -- one of the reasons i ran for the senate was i wanted to reform the income tax system. i remember reading an article by milton friedman many years before when i was a basketball player about how you could have a tax system with 16% and i thought that's pretty interesting. and i read all of stanley surrey from harvard, joe peckman at brookings, and i remember in 1986, i went to walter mondale, who was the candidate for president of the democrats, and

tried to convince him to do tax reform. i said it could take the issue from the republicans, they were out there talking about tax cuts here you could talk tax cuts and equity. talk tax cuts and equity. he had been a member of the finance committee and charlie wrangle was his adviser on this issue and i think the combination of those things made him unwilling to take what he thought was the big risk for a hopeless cause and so, it passed, however, as everything in politics, nothing nothing's secret. it leaked that maybe he would be doing tax reform. and so that's when reagan called for a stutter by the treasury treasury one and so happened that the people at the treasury department in the tax area were really great people and so, they took the charge seriously. and they produced a document

that was an outstanding document laying out the boundaries and the parameters and the specifics of what tax reform is. nachl naturally when you threw it out there, '82 something out specific and everybody chews on it, so everybody chewed on treasury one and how terrible this is and how terrible that is and you ended up having treasury two. and it accommodated some of those, stiff arm aed other but wasn't an improvement over treasury one. and so that's how the treasury department got involved and you absolutely need a commitment from the treasury secretary. so you need a president, you need a treasury secretary that likes it, knows it, can cut the deal for the president. the third thing is you need a

chairman of ways and means and finance who want to get this done. we see that their own political interests have served by getting this done. and bob mentioned dan. in 1981, passed a bill the first year cutting rates 30% and then he ended up being labeled as the king of special interests. and so, i think that what he saw in this was an opportunity to seize the good government man tell and p push forward with a challenge. that would make him a historic chairman of ways and means. i think the senate was very fortunate to have bob packwood as the chairman. because i don't know specifically what your political interests were, but i sense that

it was if you were going to do something that no other chairman of the finance committee had done before and you wanted to do something that would affect the 100 million americans in a positive way and potentially change the way we think about taxes. without bob packwood and dan and jim becamer, and president reagan, which would never have happened. you have to have those, those parts in place and then you have a chance. the fifth thing you need to maybe a zealot. that's the role i played in 19 1986. i did nothing but talk about tax reform for four years. it got so bad i was op a sunday morning interview show recorded on a thursday night and rebroadcast on sunday.

at that time, by daughter was about 8 or 9 years old and she had a girlfriend of hers staying with us, i said, dad's going to be on tv and the guy said bradley, stick around, dad's going to be on tv so, she elbowed her friend and said, let's go. i was going to talk about loopholes and indeed, that was all i talked about for four years. i also tried recognized i did not have the power the power was with bob packwood and dan, so i had to be supportive every way i could and i tried to play that role. the sixth thing that you need if you're going to get it passed is a committed, knowledgeable staff.

i remember bob, absolutely first rate. key thing is they can cut the deal on a lot of issues, everybody knows they speak to the chairman. and they say the same thing to everybody. they don't say one thing to one person and one thing to another, but they keep their word. so, i think those are the six that i think you need and the president's committee, you need a treasurertreasurerer, secretary that's committed. chairman of the ways and means committee. chairman of the finance committee. maybe or maybe not need a zealot and then you need a staff that is confident and honorable and has absolute integrity. the last thing i think you need and this is probably the most important thing was epitomized by a visit we made to the white

house to meet president reagan. i was a democrat, kind of a duty member, i wasn't invited a lot to the white house to meet president reagan, but there i was, seated around the table in the west wing and if you recall, each of us could go around the table and tell the president what we thought about tax reform. he was listening mainly not talking, so when it came to me, made his commitment and even though he's made his position clear, i said, mr. president, i know you're interested in tax reform, which means lower rates because when you were an actor, the rates were 90%. he kind of nodded. and i said, mr. president i'm interested in tax reform because when i was a basketball player, i was a depreciable asset, which in fact, i was. in other words what that story says is there's got to be

something for each party in the deal. it can't be all one. the it's got to be something for each party. each party has to know what they want and then if they do there's a chance to get something done. i'll make only two other quick comments. bob talked about writing to the line with seven people. again, the only reason that happened with bob packwood wanted it to happen. he was the chairman. finally called seven people. okay, meet you in the cafeteria tomorrow, or next day or two years from now. when the chairman calls, you show up. and so, it was because of him that that committee that small committee of committees worked, but he also mentioned that when you were headed down path for a long period of time, we had 30

hearings about tax reform. bob presided over every one. i was at every one. and we asked questions of every witness. one, which was how low would the rate have to go before you give up this, that or the other thing. i asked how low would the rate have to go before you give up capital gains exclusion and in the latter, answers came back if you were from silicon valley witness would say, i don't care if the rate is 10%, you still need a differential for capital gains because that will affect capital appreciation and formation and but a lot of other people came in. i don't want to say just silicon valley, but there was a certain kind of person that said no matter what, you've got to have a differential.

others said if you got the rate down to about 20, 28%, 29% we give up that differential for capital gains and that is indeed what we did. we got the rate to 28 and that was the rate of capital and income. so each chairman would pose thoughts. thank you, committee for the opportunity to come back. once every 25 years. >> we're honored both of you are here and i think anybody listening to this has to realize went tli a very trying time. very difficult for the congress was split. republican president -- >> appreciate you, start the time. let me just ask this question. revenues the percentage of gdp

averaged 17.4% over the past 50 years. revenues in 2014 were 17.5% of gdp. trending up to 18.3%. of gdp by 2025. in other words taxes are higher than the historic, even higher. so taxes are already higher and have been raising revenue and tax reform makes enacting it less likely. shouldn't we do tax reform on revenue neutral basis. start with you, senator packwood. >> i would much prefer it although i would combine both corporate and individual into one bill. and thep you have a little more wiggle room using either side of that equation to be able to reach your revenue neutrality.

>> we of course did revenue neutral. i think the times today might require some additional tax. but i believe that's something that the committee has to work out itself. if woeyou really do thorough tax reform, what you find is, at least we found that upper income americans will pay a higher percent. example example, we cut the rate from 50 to 28 and yet, the top 5% paid a higher percent of the total tax revenue after that reduction and before. >> five major economies operating on the worldwide tax system. meaning it currently taxes an income of its companies where ever that income is earned. even if it's not in our country.

currently, companies have the option of bring inging the profits back, but face a tax of 35% minus foreign tax credits. both would rather not pay and keep the earnings abroad preferring the additional tax and currently is our law, u.s. law, allows companies to diefer the tax indefinitely. the budget was substantially limit the defeshl since it imposed a minimum tax of 19%. do you think we should go to a territorial tax system like most other major countries, in fact most other major companies or not? >> well mr. chairman, i thought so the last 30 years. we're often we have to compete overseas and here's the advantages they have and one of the advantages they have is territorial. i think we ought to go to the

system that the rest of the principal industrial companies used, which is if you invest overseas and make profits overseas and you pay your taxes overseas, you can bring back whatever profits you have to this country and they're not taxed and i think that's a good system. >> when you have profits overseas and are taxed in a particular country at the rate that country charges, all of those taxes are deducted against liability in the united states. the tax credit. the president's proposed two things. i think one is a 19% tax on the deferred income going forward. and a 14% tax on a whole of the packets abroad.

i think that the committee will have to work its will on that. i think the tax makes sense in terms of the overall picture. in reality we're going to have to figure out, is there some other way, i don't think that's going happen. is there some other way that you could bring the money back and i think embodied in the president's proposal, the 14%. is a b possibility that maybe top 14. maybe it's 10. maybe it's not 19. maybe it's less. but somewhere in there, capital gains, wants to bring the capital back. >> thank you, mr. chairman and the two of you have told an inspiring story about bipartisan ship on a major economic issue and colleagues, we just looked up the vote that attests to what

happened. 97-3 original vote in the senate and then on the conference report, 74.3. this kind of work paid off. what i'd like to start with is asking about the process. because as far as i can tell in this effort to promote bipartisan ship every step of the way, you said we're going to use the normal process because normal process in the senate really promotes bipartisanship and you have to have 60 votes and certainly, neither side today has 60 votes, so you use the normal process and it really forces bipartisanship. the alternative is to use what's called reconciliation, which in effect has 51 votes, one side could have their way on tax reform. my question to both of you, either one who wants to start, is it your view that using the

normal process, which you all used in 1986 was helpful and is it your assumption that it helps promote bipartisanship? >> absolutely for a variety of reasons. one, every member of this committee ought to be misgivings about reconciliation and using it to jam as many things into a bill as the majority wants because they're not sure they can get it passed any other way. what it lends to is more and more of the decisions leading up to the -- in my era, even in lyndon johnson's era, no majority leader would have ever thought of taking a bill away from committee. reconciliation just holds out that plunlg they use it this way. no, i'd much prefer the regular order for a couple of reasons. one, it is still the argument's against it we had no chance.

we didn't get to offer the amendments. there was a time limit and if you win it, in the normal process, you've got a lot better credibility than if you've jammed it through in reconciliation. >> bradley, top that? >> no. the question was what, mr. chairman? >> normal process. abiding bipartisanship reconciliation. >> i think the way we did it i agree with senator packwood 100%. that the normal process is better. also has to do with with the committee in the larger senate. we had agreement and members of the committee that when a vote would come up neither committee members would break and would

stay with the committee bill. and that was a point of personal anguish for me because in the committee. what senator packwood referred oils. senator packwood was the chair and senator russell long of louisiana was the ranking member and he had a few interests in the oil pack. and i of course was going to go after it. have to go after that, we can't leave that out. we were meeting in secret back there and we had a vote in the back room. and it was 11-9 against me. and i viewed that that was in the back room. there was one senator who had taken it public, he wouldn't vote that way.

and so, i didn'tthen raised the issue in the committee, full committee, and i saw senator long's head go like that. and i called for the vote. and the person who i thought would switch, didn't switch and right up there against this wall afterwards russell long got ahold of me saying, if you ever do that again. but life went on and you know, the screw turned. we got to the senate floor and then republican senator lowell wiker offered the exact amendment that i had offered in the finance committee. because he had a deal, we were all going to stay together, i voted against my own amendment. so the cloud of the finance committee in the senate as a whole is instrumental in getting a bill passed because most of the other senators don't know a lot about taxes.

they have a few opinions about this, this and the other things. to the extent that you can speak clearly and hang together you won't need to have any kind of reconciliation. >> if i could ask one other question because this was a remark remarkable feature. of the 86 bill and i think it would be helpful for the committee to know how you two got to common ground in '86. in 1986, you were able to say that income from wages and income from capital was treated equally. and senator bradley talk eded about his views on it and i think it would be helpful to know how you two reached that judgment that by today's standards, would be remarkable. in fact, today people say if you could just reduce the difference between the way income from capital and the way income from wages was treated that would be a huge reform. how did you two in 1986 get to

common ground on treating wage income and capital income the same? >> well realize we wanted to keep the same progressivety that we had in the existing law but we were going to lower the rates tremendously. so in order to make sure that the very wealthy still were roughly in the same progressivety incline, we had to get rid of capital gains and the differential. as simple as that. in fact, it didn't even really bother the committee that much. it was a small issue. malcolm wolf had some misgivings about it. we agreed remember bill, we made the rate the same but didn't put it as a separate section because malcolm says you put that in the bill and get rid of capital gains and the word and then pretty soon, congress is going to start to raise the rates and capital gains will go right up with them. turns out he was right.

it was to make sure our progressivity was the same. >> just a little addition to that. exactly agree with what senator packwood said. there was a provision in the bill since we got to the magic number of 28 for both capital and earned income. we had a provision in the bill that said if the generate ever went higher than 28% the capital gains rate would be 28%. in other words, you would never tax capital higher than 28. and i remember oh, might have been four months after the passage of that bill, people were saying we need differential capital gains and my point was if you take a differential capital gain, you're going to end up with much higher, generate. and indeed, that's what's

happened when president clinton came in. capital gains went back in and the rates went to 39%. and seems to me that there's a lot more coherence in a bill with a lower rate that treats capital and labor the same. >> thank you, senator. >> thank you, both, for coming. i want to start with something you both touched on in your opening statement but to get more specific, and so i'll start with with senator packwood but i'll ask senator bradley the similar question. it deals with the process of presidential reform. do you think tax reform would have happened if president reagan had not made tax reform a priority in his administration and a follow on and then isn't it going to take at least that much commitment or involvement

from president obama with with his own party in congress to get a tax reform bill enacted and then for senator bradley, could you share your thoughts on the importance of presidential leadership and accomplishing tax reform. senator packwood. >> senator reagan was immensely helpful. if you're asking me is is it absolutely essential from day one and pushing i don't know. it's like saying this committee couldn't reach its own conclusion without the president, but it was very helpful and one morning, there was a small breakfast at the white house. just danny and me and the president, vice president, jim bakker. it was before, bill had passed right before conference and the president took denny and me aside at the end and said if you can keep this bill revenue neutral and get the rates you got, you may count on my support no matter how you get to those

rates, so that's how critical it was. we knew we had his backing. absolutely. but bill touched on something and that was about the treasury. jim bakker was up to his neck in negotiations with us and dick darmen because in the last seven days, where this was all done, he wasn't here. he was in tokyo with the president on one of those economic multination meetings and all of the financial negotiations for the administration were done by darmen and on the last paragraph of my testimony, you'll see an interesting exchange on the phone between darmen calling bakker in tokyo and telling him what to tell the president. so, is is it pretty -- i don't know if it's critical, is it immensely helpful? yes. >> senator bradley. >> i think presidential

leadership is essential. i believe there are so many times when things happen that you need to be able to get the white house's clout. that can be man fastifested through the treasury secretary. it's not you talking to the president all the time. but i also would say, going back to my anecdote, i think the president would viscerally in favor of lowering tax rates because when he was an actor he had a 90% rate. 90% and i would viscerally in favor of this because of the asset of a basketball player. in other words, closing loopholes had traditionally been what democrats were for. lowering rates were traditionally what republicans were for. the question is can you bridge that divide and bring something together. the answer is yes. if reagan had not said i put

my -- on this it would not have happened. >> and bill touched on something right there, senator grassley. froms democrats wanted to get rid of unjustifiable deductions. republicans are not adverse to going along with that, if they can use the money to lower the rates. and president reagan said i'm -- re reductions and produced a potful of money and you can't raise revenues. to lower rates and you had a willingness, to reach the same conclusion. >> last question deals with something we have to tackle here in a basic way. so both of you in your view, how important was it that the '86 bill was comprehensive tax reform package rather than focusing only on business or on the other hand individual reform and getting support for

its passing? >> for us it was critical because we needed a lot of the money we raised from business. don't confuse rates with revenue. we raised an immense amount of revenue, more than we raised from businesses before, but we lowered the rates and we used a lot of their money to wholower rates from individuals. i would have misgivings about trying to do just business and then later on we'll try to do just individual. i think you're better off to try to do both at once in one big bill. want to use the grandeur again. you come out with a big bill that you've agreed upon and if you do, touches the point bill and i have talked about before the bill ever gets to the floor of the senate, you're going to have immense newspaper support academic support across the board, liberals and conservative and you will be glad in retro retrospect that you combined it

all in one. >> i agree. we should, you should you should combine both corporate and individual. p because if you just do corporate, it's not like you're going to have an easy path. if you do anything that's serious. for example, when we did the individual and corporate, essentially, the business community split. large percent of the business community to the point. another segment of the business community was against reform. guess what was the dividing line? what tax rate they pay. >> if they paid less taxes because the rate went from 50 to 28, they were poor. it made up more. they were against it, but the key was constructing a coalition that included a significant part of business.

this is where bob was brilliant and so, i would argue that that's very important. you also might get through a point where you might have more flexibility if you do individual than corporate because they both are essentially two sides of the same coin. for example, you might decide that you want to cut the corporate rate to 10%. or 15%. and you might want to off set that by increasing the taxes on the individual side. on dividends and capital gains. that's what they do in denmark, for example. you wouldn't have that flexibility if you didn't have both individual and corporate put together in the same bill. >> senator isakson. >> thanks for being here.

i was a real estate guy in 1986 and had a couple of brokerage companies. first of all, thanks for being on the nine who voteded against selective treatment from the passed law. i think that's right, both of you voted against that if i'm not mistaken. looking in a rear-view mirror, had some transition been applied to those investments made prior to '86 so the treatment would be properspective, did you ever think about doing that or if we went into something again, could we do it that way? >> he's right. if there was an industry we hit, it was real estate. we drove the -- out of business, the principal financers of real estate. and we did not do it to, we did not do it retro -- we did it retroactively. we found passive lawsuits for

rich people to shell their money and pay little taxes. we got rid of it, but senator, you're absolutely right. the real estate industry was hit hard and the oil industry got it particularly favor as the deal i made, because i was going to need their votes later on on the floor in a particular issue. >> senator bradley. >> i agree that real estate industry paid more. if you phased it in of course, you have not as much revenue and you also skew the distributional tables. but in records to real estate, we keep in mind that was at a time where there were i would say real estate tax shelters that were not, investment was not based on the need for apartments or office space, but

based upon theville taxpayer getting a tax deduction off set all the other income. i had a call sometime in this period from paul volcker. who has been the federal vefr chairman. he said you know i really like what you guys are koing up there. i said why is that? he says because i can't get at these banks who are simply throwing money at uneconomic real estate investments and it has to be through the tax code. so, i think that's one of the reasons, at least for me that i felt we were on strong ground. >> i think you did the right thing because it was abused. my point was if you could have transitioned prospectively in terms of the passive loss rather than claw back you might have prevented the collapse of the savings and loans and creation

of the reefs, which is what the ramifications were. >> i think you're right. >> one other question -- collapse because of the tax reform. that was the last straw, i guess. that would be it. >> maybe that's a better way to say it. >> my other question is did you consider in 1986 or have you thought since about going to a retail sales tax or con sumts tax? >> i've thought to myself what kind of a deal could have been between the republicans and democrats that would result in some increased revenue. i thought, what happens if the democrats were to offer this to the republicans? we'll go to an electronic funds transaction, which i prefer sales tax, and we will cut in half the corporate and individual income tax.

and you will allow the tax however to produce an additional $500 billion in revenue. now, the republicans are thinking wow, you could cut the income tax in half and corporate in half and we're not really, we've already spent a supportive con sunlgts tax any way. is that kind of a deal possible? we'll go to it one day. there's no question in my mind. the danger of any kind of a con sumgts tax is probably republicans are more afraid of it. it is so easy to raise. need a little more money? raise a half a percent. take a look at your sales taxes in different states. this started 1% or 2% 30 years ago and are now at 8 or 9%. look at the european value added taxes. i don't know if any major country in europe that's not less than 20% on the value added tack, but to answer your

question, yes. if you could combine it i think there's a possibility that you could possibly maybe see the republicans shaking their heads. you could possibly make an argument for some increased revenue to change dramatic reductions in corporate andville. . >> rell quickly. senator bradley. >> i think what senator packwood said about electronics transfer tax is extremely interesting. you know if i were the chairman, i would task the joint tax committee to an analysis of that in terms of revenue that could be generated. because you've got to know what revenue you're going to generate before you cite how you're going to spend it. on the consumption tax issue in my testimony i make a suggestion baseically, the point is that we should tax less those

things we like such as wages and tax more those things which are bad for us and dangerous, which are pollution, for example. social security, medicare, unemployment. and a gasoline tax. or a tax on things like volatile organics or sulphur dox ide or lead or whatever. just a numbers game. if you did that, it would be, have profound impact. if you were to cut both individual and corporate social security employment tax, you would in essence be giving individuals a tax cut and corp.

races a tax cut. at a time where jobs were need ed ed. the fact there's this 15% hurdle, it affected different industries in different ways. if you're mckenzie or microsoft or google or you want to hire real talent, you pay them more because you really need that talent so that you pay them more to off set the employment tax. if you're working the lumberyard in oregon or somewhere where there's a surplus of labor the you don't pay them more to off set it so the irony is that it ends up hitting the lower paid guy, the struggling industry, more than it hits the person who's in the consulting or technology industry.

so, reducing those employment taxes are have many benefits. for example a 24 million people people, 25 million people working part time now could very well be brought into the workforce. you could find people that weren't working to be brought into the workforce, so that's the good news. the question is, what are you going to use to provide the money to do that? and you know, i know the committee has looked at it. it's probably not possible. but who knows. they said tax reform wasn't possible in '86. you could take a dollar gasoline tax or you could take a carbon tax and use all that money to reduce those employment taxes and i think the net benefit would be greater job creation, economic growth. it would hit certain sectors more than others, obviously. but let's just take the dollar gasoline tax. never could it be offered would it be a better time to do it

than now when prices are where they are, but say you phase it in as you suggested you do on the other things. if you phased in a gasoline tax over five years and the automobile industry was going to improve mileage efficiency, at the end of that five years, it's the individual would be geing more miles with less gasoline, they would be paying no more for gasoline with the dollar tax that could be used to reduce slow security taxes and employment taxes than they're paying now. without it. >> senator nelson. >> improve the roads and bridges that are crumbling. this has been a fascinating discussion for me and thank you

very much. i take your ideas and try to put them into the day's politics. off setting lowering employment taxes and going after something like nitrous oxide and that's much more difficult today because of the climate debate. that is going on. getting the votes. i think about what you said, senator packwood, that president reagan was so critical in tamping down the opposition is among republicans in the house. well, how are you going to get president obama to tamp down that opposition? today, just over the knee jerk reaction to some republicans to the word. so, it's hard for me to make the

transition from your success in '86 to today. and it really puts a real burden on the shoulders of our chairman and ranking member. >> well, that's why this committee, at least in bill's -- there is much more than nonpartisanship in the senate than there apparently is today. i can't tell you whether or not you can put, 1986, it appeared to us, just as difficult to put it together as it appears to you now. there are different issues than we had then. and nobody can make the right circumstances. you can't buy them, wish them, coerce them. all you can do is be around when these circumstances comes and hope you can take advantage of it. maybe there's a possibility. but if at the start we're going to say the republicans say no bill, if there's any revenue increases total and if the

democratic position is no bill, unless there's some revenue increases, then you might as well spend your time working on asia pacific trade agreement or something like that. >> you know, our proproblem thus far since a lot of your success has been we're in this kind of herky jerky patch at the 11th hour. tax extenders, an example. you want to give us your thought about how we take this illogical approach to taxes? do you have to do it in the overall global kind of big deal in order to get it done? >> tax extenders are lobbyists

through employment axct. >> yes. >> you have to bite the bullet and make some decisions. what should be permanent what shouldn't be. there are always questions of revenue, so you want it to go out a year or two but not three or four because that would affect the revenue. and i just think that you know, the practical reality is that people would probably say extenders are necessary. but they're necessary only because fundamental choices are not made about the tax code. what kind of tax code do you want. what do you want in, out, not what you want in this year because then we all know you lobbied every year about the same thing and quite frankly, it becomes boring, i would think. you know the argument before they come on. on your earlier point about nitrous oxide, you know you would be cutting some taxes.

social security. a couple of years ago, you cut the social security tax and then there was a quiet deal. you let it go back up and nobody said anything about it. right? not one party attack eded the other party. well, that's the kind of thing here you could get with the employment tax reduction and the increased taxes on essentially either pollutants or gas or carbon. >> i have mixeded feelings about extenders. you make some of these permanent, you're going to play however getting rid of them when the time comes you ought to think you get rid of them. at least with extenders, you are forced to look at them at least and think, should this be kept and then of course everything falls apart and you extend them all. say you made them all permanent. now, you don't have to look at them until someone says you should look at this.

kind of pay your money and take your choice on it. >> next is senator coates. >> this has been fascinateing for me. i'm a rookie senator sitting can't use a basketball analogy, but i can use a baseball analogy. in the left field bleachers when my friend had to extend the roster here to accommodate the three of us, so it's a -- well, that's home plate. i figure i'm in the left field, although i would prefer to be in the right field. never the less, having had the opportunity to serve with these two distinguished former senators just sitting here, listening to them talk through the process has been fascinate

fascinating. so often, we take an issue and start with the substance of the issues. comes to a grinding halt because the process wasn't set until the beginning. determines how we take the -- from here to there. outline the principles of the process that you had to work through in order to accomplish the goal and occurs to me mr. chairman, that a buy in of the committee with the principals up front to prevent us from having to be seduced away through ideology or through special interest group pressure on particulars, okay, i can get behind you unless if you exclude this.

or include that. perhaps from getting batter's box all the way around to home plate, so, i just thought a fascinating history here had the pleasure of serving you in 1986 but watching what was happening there, we need a member of the house and then now, all of a sudden, having the opportunity sitting here thinking could this really be done? and what you left with us is yes, if you avoid, if you if we as a committee can avoid the pitfalls of making prejudgments as to what ought to be in, what ought to be out and look at how

we could accomplish something of the enormous impact of the future of america for the whole swren ration, i think that's what we're looking at here. what a legacy that would be. to you, mr. chairman. to ranking members and all of us on this committee, it appeared to me there are some stars lining up here. between the house and the senate. given the personalities. experience and background, leadership of the ways and means as a way of the finance committee here. question mark in terms of where the -- to their income level and what causes the eureka moment. to me it seems like i'm just

going on here, but seems like the real challenge here is to address the question of how a lower rate and cleaner product can result in the kind of growth and economic and economic impact is something we would do. should i go back in the government for expenditures as appeal ing appealing as it might be? how many roads could we pave and how many bridges could we fix or do we let the market determine how that capital is better invested. it's really not asking a question the panelists want to comment on that. actually, making a statement.

>> senator wideyden, you may remember my predecessor, give me control of the procedures and i will control the substance of democracy. this was not really a planned procedure. the house pretty much seeded us the right to write the bill and if they likeded it, they'd adopt it, but i wasn't making any progress following normal procedures. it was only when the thing wu not moving at all that i came up with this idea of half a dozen of us getting together in secret and in this group we had, four republicans, three democrats. we had an agreement. if any four or us could agree on something, it would be put in the chairman's mark. i recall no vote. four democrats, three democrats. i recall a number of those where i was on the three side of the vote, but we had that agreement.

but it wasn't planned nothing worked, but yet, the circumstance was there to make something work and that's how it happened. i don't know if the circumstances here. you feel it. you don't plan for it. it arrives. i'm not sure how to make it arrive. >> i'm trying to get that feeling. >> senator harper, you're next. >> thank you, mr. chairman. to chairman packwood, my friend bill bradley, it's great to see you. i was talking with brian sealander the other day, whom you graciously sent to me sent him to delaware signed him up to my senate race and one of the reasons why i'm here today is is is because of that kind gift along with sean barney and a couple of others who came as

well. so, thank you for all of them. you couple of years ago, we're having a hearing on the issue of debts reduction and had a bunch of really smart people here to talk to us that day, too. one was ellen blinder. has been the vice chairman of the federal reserve. back now teaching economics at some school in new jersey, starts with a p. >> princeton. >> that's it. at his testimony he said to us in terms of debts reduction, 800 pounds of -- health care costs. says if we don't get our arms around that, we're doomed. he said more than that, but that was the substance. sfrz i said what's your advice to us? he sat there for a while and

thought, then he said this would my advice. find out what works. do more of that. he said do more? he said, yeah. we're happy you're here and looking to find out, you've given us idea of what worked. one of the keys is clear to me, leadership. whether it's a basketball team college university of business, most important here most important ingredient is leadership and we can't pass laws to create leadership but every now and then, people come along and provide great leadership. just talk about the importance of leadership here and what our

leader, what we, our lead rs of this committee and of the senate especially, what we need to be doing. >> as i said earlier leadership starts from the president the treasury secretary, chairman ways and means and chairman of finance committee. that's the leadership structure. if any one of those isn't on board, it's not going to happen. i would also make the point when senator packwood made the point whoever voted, he lost sometime i lost sometime. four republicans, three democrats. that was fun. legislating is fun with the right people. you can do something very important and you can enjoy what you're doing because you never know what's coming around tomorrow.

if you're in that kind of negotiation. it requires you to know what you're talking about. i just hope you guys are having that much fun. >> fun would be good around here. >> i've got to tell a humorous story about bill because remember, i don't have a whole lot of time. >> sorry, go ahead. >> if you could if you want to just answer, i'd love to hear the story, but question about leadership and what senator bradley told us is very important, right on. all of us in politics have seen natural leaders. some are inside leerds like lyndon johnson, some outside, like ronald reagan. we all know who are the standout leaders. we knew in my era that scoop jackson and sam none on defense were good for seven or eight

votes and a tight vote anymore. we knew that dick lugar on foreign policy was good for six or seven votes they were leaders in their area. all of you on this committee know who the half a dozen leaders are. i don't know, but you know. certainly, the ranking member an chairman now. and there's -- a ko lig of those can be put together, but the key is, you have the leadership, does the little leadership group agree on the goal they want to reach? if they don't agree on the goal, no quantity thety of leadership is going to make any difference. >> thank you. >> second question deals with you know, did all this work in '86, ink dry on the legislation for all those years and we started changing it. a whole lot over time. did you ever think of the time

that we'd see this kind of change that quickly in such, to such an extent and did you ever think at the time about what can we do to sort of preserve what we have, at least for a while? i don't mean how many changes we've seen, but i'm told like 15,000 or something or mb since '86. should we keep looking for the federal reserve for a while just a -- >> tom, that was a real lesson for me. that obviously one congress can't buy another congress. you can pass something which i thought, i think bob did it and people as significantly as tax reform and it can be like a sand castle. on the edge of the sea. can be washed away the next year. which means you have to be

humble when you do these things and you have to i don't think there is a institutional fix to make things permanent. maybe the reason this wasn't permanent was that you know this wasn't something that bubbled up from the country saying you must do that. do this. this was something that happened because people who had responsibility on this committee assessed what was the right thing for the country. >> all right. senator packwood, briefly. my time's expired i'm afraid. thank you. >> mr. chairman thank you, thanks for holding this hearing and i want to begin by thanking our distinguished guests for being here today. as a relatively new member of the is that the and a new member of this committee it's great to get to this historical perspective, so thank you so much for taking time.

i'll also thank you and the ranking member for being committed to this effort. i know the it's not going to be easy, but it's good to see that there is real work moving forward and i appreciate your to our witnesses, the further you get out here in left field, the more general the questions, but it is good to know that both of you started where i am today. so there is hope for the future. i want to move to five years ago on the bull simpson proposal. did either of you testify or have an opportunity to put any input on that particular proposal? >> i did not. i was not called as a witness. i followed it very carefully in the press but i was not -- i was not a witness before that commission. >> can you give me any perspective of what you thought of that report?

>> well, i thought the report was excellent in the sense of here is where this country is going, if we don't do something. i've often put it -- when i speak it i put it in a different version. i am less concerned about the deficit than i am about the increased spending. if you are rich enough you can afford a deficit, as long as you stay rich. you can afford to pay the interest on a debt. but i look at spending and the figures are not that necessarily good from a century ago but as best we can tell a century ago all of the governments in this country, federal state local, water and fire districts, spent about 10% of the gross domestic product. today the same governments spend around 40% of the gross domestic product and that same pattern has been true in all of the

major countries and they just started before we did and if you look at the simpson boles report, that amount is going to go up. and the debate we should not be about the deficit and we can debate about it, but do you want this country to spend 45-50% or 55% of all of the available assets on government. that doesn't get talked about because it gets mixed up in the government. >> senator bradley the same question to you? >> i did not testify. i always talk to my buddy al simpson but we didn't spend a lot of time talking about taxes. >> he's one of my favorites, allen simpson.

when i was in the house, i was on the ways and means committee and dave camp was my chairman. as you know bowls simpson was dead on arrival. and it got no hearings and was dead on arrival. what lesson do we learn from these efforts? >> you're discouraged. i read the camp proposal. it was a good proposal. i thought it covered a lot of bases that needed to be covered. and you are right, it was dead on arrival. and i'm not going to bad mouth the president, but he appointed this council. and as soon as it comes out, he gives it the back hand. but i thought the commission did a first-rate job. >> i thought camp had some interesting ideas.

what happened, he kind of started too late. people knew he was going out the door and he did his own thing and put something specific forward which is a necessary prerequisite the treasury one and the treasury two, and you have to put in something specific because the interest chews it up and you have to figure out what can be swallowed and what can't. i think you need to see the total picture. i think he did a very good job of thinking through tax policy and coming out with a coherent package. >> senator bennett, you are next. >> thank you mr. chairman. and what a great privilege to have both of you here. i was thinking back actually as senator packwood was talked to john mcphee's book, a book about senator bradley when he was playing basketball at princeton and asked the question, how could this --

maybe not the best athlete that we have or the best of this or that, suckceed so well at what he was doing and senator packwood said the opportunity appears to do it. and so with that in mind, i wanted to read -- i took a look at showdown at gucci gulch and the first chapter and i think it is worth the historic perspective and i would just ask you to respond to us. the groups with an interest in the existing tax system were well organize and ready to defend the tax breaks at a moment's notice. the tax populous were unorganized and diffuse. furthermore congress was a slow and cumbersome institution -- that is not true any more, of course -- that only made piecemeal changes. this produced a revamping of the

tax structure. there was a tremendous inertia in congress that resists any such sweeping change as a result they held that tax reform was destined to lose and the conventional wisdom had plenty to back it up. tax breaks, after all had been part of the currency of congress. this passage i would say is even truer today than it was 30 years ago, as a description of where we are, just in 2014 federal lobbying totaled over $3.2 billion. i wonder if you could take us inside of that room you talked about and tell us as senators how you were able to overcome the -- these interests and the pressures that you faced and how we as senators should think about that in the arc of our careers on this committee? >> well if you are talking about the little cab el of seven of us, the pressures weren't that

great. we knew what had to be done and wondered could we swing it and make it work, but i don't recall i'm not going along with x is in this bill or x is not in this bill. so those pressures were not on us. i know what you mean about the interest groups and that is what happened to the house bill. they had a lot of individual votes on each of those little parts and if it hits your part and you hate that, you are against the bill. you don't care what is in the rest of it and you hate the bill. that was enough of that. that was not in the -- the senate bill didn't happen that way. the senate bill was written in those seven days and we didn't have any hearings. and suddenly it was like minerva born fully formed. here on the last night does the committee see the whole bill for the first time and vote for it 20-0. but had they voted on individual

little sections and i'll give you the reason i made this deal and i never told bill this and the reason i made the deal with the oilies and we got it and i take it away from everybody else and bill was furious and george mitchell has furious because i hadn't bounced it off the group because we are voting that night any way and the reason i did it is because the biggest reason we did this on the floor it was going to pass 20-0 and it was because of the ira's, it was on the other side about more more and not clampen up on the ira's and that was about a $20 billion pick-up. well on the senate floor this ira amendment came up and i won

it 51-48 and 19 out of the 20 oily senators voted with me and had i not made that deal i would have lost a couple of them and i would have lost ira and that loses the bill. >> senator bradley? >> the reality is that tax reform was failing, until the pac would counter offensive. and it wasn't like this sprung forth from the head of zeus, right. we had had 30 hearings. the substance has been thoroughly chewed over by the committee. it was familiar territory just put together in a different way. >> thank you mr. chairman. >> thank you. senator sohn. >> wait a minute. let me see here. i'm sorry senator menendez,

first. >> all right. thank you both for your testimony which i read at length. i think we all agree we need to simplify the tax code and make it more economic lyally efficient, but i always think before we go about the task of comprehensive tax reform, we need to agree what is the end-goals we are trying to achieve so we can direct our focus. and i know some of my friends here argue that we should focus solely on corporate tax reform and stock market gains and i think i heard you both say you feed to do it all at the end of the day to make it effective. senator bradley, do you believe it is enough for tax reform to focus on increasing gdp on the stock market and corporate